Present value (PV) represents the current worth of a sum of money today, while future value (FV) represents the worth of that same sum at a specified time in the future, assuming it earns interest over time. The core difference lies in the timing of the cash flow relative to the present moment.
Conditions: Applies to monetary amounts subject to interest rates over time.; Assumes a positive interest or discount rate for the values to differ.
Present value (PV) represents the current worth of a sum of money today, while future value (FV) represents the worth of that same sum at a specified time in the future, assuming it earns interest over time. The core difference lies in the timing of the cash flow relative to the present moment.
Conditions: Applies to monetary amounts subject to interest rates over time.; Assumes a positive interest or discount rate for the values to differ.
To calculate the future value (FV) of a lump sum, you use the compound interest formula FV=PV(1+r)n. You substitute the present value (PV), the interest rate per period (r), and the number of periods (n) into the formula.
Conditions: The interest rate r is assumed to remain constant over the period.; The compounding frequency matches the time unit of n (e.g., annual rate with years).; The formula assumes a single lump-sum payment rather than an annuity.
To calculate the future value (FV) of a lump sum, you use the compound interest formula FV=PV(1+r)n. You substitute the present value (PV), the interest rate per period (r), and the number of periods (n) into the formula.
Conditions: The interest rate r is assumed to remain constant over the period.; The compounding frequency matches the time unit of n (e.g., annual rate with years).; The formula assumes a single lump-sum payment rather than an annuity.